USD/INR extends the rally ahead of US employment data
|- Indian Rupee trades with a bearish tone in the shorter-term during Friday’s Asian session.
- Increased importers' USD demand undermines the INR, but RBI’s intervention and rising Fed rate cut bets might cap its downside. The US August employment report will be in the spotlight later on Friday.
The Indian Rupee (INR) edges lower on Friday after retreating to its record closing low in the previous session. Traders remain vigilant for possible interventions from the Reserve Bank of India (RBI) through USD sales, which prevented the INR from depreciating past the crucial 84 level. However, the US Dollar (USD) demand from oil importers and foreign portfolios might weigh on the local currency.
Investors will closely monitor the US August employment data on Friday, including Nonfarm Payrolls (NFP), Unemployment Rate and Average Hourly Earnings. Any sign of further weakening in the labor market could prompt the expectation of a deeper rate cut by the Federal Reserve (Fed). This, in turn, could exert some selling pressure on the Greenback, making other currencies like Indian Rupee more attractive.
Daily Digest Market Movers: Indian Rupee edges lower amid importers' USD demand
- “Rupee makes a new all-time low of Rs 83.99 per dollar as importers, FPIs and oil companies continue buying while RBI ensures that it does not cross Rs 84.00 per dollar, a psychological level,” said Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP.
- Private sector employment increased by 99,000 in August and annual pay was up 4.8% year-over-year, Automatic Data Processing (ADP) reported on Thursday. This figure followed the 111,000 (revised from 122,000) increase seen in July and below the estimation of 145,000 by a wide margin.
- The weekly US Initial Jobless Claims rose to 227,000, compared to the previous reading of 232,000 (revised from 231,000) and below the initial consensus of 230,000.
- US ISM Services PMI increased to 51.5 in August from 51.4 in July, beating the estimation of 51.1.
- Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of labor market and inflation data justify the Fed easing interest-rate policy soon, and then steadily over the next year.
Technical Analysis: USD/INR’s broader trend remains constructive
The Indian Rupee weakens on the day. The USD/INR pair remains confined within an ascending triangle on the daily chart. However, in the long term, the pair maintains the bullish vibe unchanged as the price holds above the key 100-day Exponential Moving Average (EMA). The upward momentum is reinforced by the 14-day Relative Strength Index (RSI) which stands in bullish territory near 59.55, supporting the buyers in the near term.
Sustained trading close above the 84.00-84.05 zone, the confluence of the psychological figure, the upper boundary of the triangle and the high of September 4, could see an upside breakout that may take USD/INR up to 84.50.
Any follow-through selling could drag the pair down to the ascending triangle support near 83.90. A breach below this level could revisit the 100-day EMA at 83.64.
Indian economy FAQs
The Indian economy has averaged a growth rate of 6.13% between 2006 and 2023, which makes it one of the fastest growing in the world. India’s high growth has attracted a lot of foreign investment. This includes Foreign Direct Investment (FDI) into physical projects and Foreign Indirect Investment (FII) by foreign funds into Indian financial markets. The greater the level of investment, the higher the demand for the Rupee (INR). Fluctuations in Dollar-demand from Indian importers also impact INR.
India has to import a great deal of its Oil and gasoline so the price of Oil can have a direct impact on the Rupee. Oil is mostly traded in US Dollars (USD) on international markets so if the price of Oil rises, aggregate demand for USD increases and Indian importers have to sell more Rupees to meet that demand, which is depreciative for the Rupee.
Inflation has a complex effect on the Rupee. Ultimately it indicates an increase in money supply which reduces the Rupee’s overall value. Yet if it rises above the Reserve Bank of India’s (RBI) 4% target, the RBI will raise interest rates to bring it down by reducing credit. Higher interest rates, especially real rates (the difference between interest rates and inflation) strengthen the Rupee. They make India a more profitable place for international investors to park their money. A fall in inflation can be supportive of the Rupee. At the same time lower interest rates can have a depreciatory effect on the Rupee.
India has run a trade deficit for most of its recent history, indicating its imports outweigh its exports. Since the majority of international trade takes place in US Dollars, there are times – due to seasonal demand or order glut – where the high volume of imports leads to significant US Dollar- demand. During these periods the Rupee can weaken as it is heavily sold to meet the demand for Dollars. When markets experience increased volatility, the demand for US Dollars can also shoot up with a similarly negative effect on the Rupee.
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